[RFC] Introducing dgnETH

Introduction

Introducing Degen ETH (dgnETH), a high-yield Ethereum Index Product crafted to outperform the Liquid Staking Token (LST) market. As dgnETH TVL scales, new strategies are added to the index to increase the yield.

dgnETH is paving the road for high-yielding ETH strategies for the global crypto economy. The product is designed to be transparent, with onchain proof of asset backing and each adapter added to the dgnETH collateral basket being audited.

This Request for Comment (RFC) is an open invitation for the community to engage with dgnETH. We encourage everyone to ask questions, provide feedback, and share suggestions to help refine and improve this RFC.

For those interested in contributing to the success of dgnETH or want more information, please connect with us via Twitter @0X_sleepy and on Telegram at @OxSleepy

Mandate

What is the mandate?

  • Maintain a high-yield diversified ETH LST index leveraging collateral to earn from Liquidity Provision, staking, lending, and other yield-managed strategies.
  • Manage yield with risk management by deploying into audited protocols

Deployer

Who is the Deployer
Hello :wave: I’m 0xSleepy, I’ve been involved with crypto since spring 2020 and active contributor in DeFi since the beginning of DeFi summer. I’ve contributed to projects such as Yearn, Harvest, Spool, Alchemix, and many other protocols throughout the years. As an active DeFi user, I acquired deep knowledge and understanding of how protocols grow and establish themselves as lindy throughout both bear and bull markets.

I believe onchain markets offer global accessibility to financial instruments and opportunities previously limited to specific locations or income statuses. DeFi expands equal and efficient access to financial products for all people.

Why did I decide to deploy the RToken?
RToken infrastructure was designed with the vision of inflation-resistant currency. I believe RToken infrastructure can be leveraged for other use cases. dgnETH is an experiment on RTokens as an adjustable high-yield index product that leverages the collateral basket design for normal adjustments to get competitive DeFi Yield

Collateral Asset Backing

What does the initial collateral backing for dgnETH look like?
dgnETH’s initial collateral basket will begin with exposure towards two sources of yield.

  • Re7ETH Morpho lending pool 50% (Lending)
    • The Re7 WETH MetaMorpho vault curated by Re7 Labs aims to outperform staked ETH yields by lending WETH against a diverse set of Liquid Staking and Liquid Restaking Token collateral markets. Learn more here
  • ETH+/ETH LP 50% (Liquidity Provision)
    • A curve liquidity pool staked on Convex to earn boosted yield. Staked LP positions earn yield from LP activity, Curve rewards, and Convex rewards. Learn more here

Why were these collaterals chosen?
With initial exposure to Morpho and Convex, dgnETH balances the initial pool for risk return offering a DeFi yield of up to 14% while earning from protocols that have gone through multiple rigorous audits. Though in time, dgnETH may deploy into more risk on strategies, this offers a strong foundation to expand from.
Convex Audits
Morpho Audits

Product Differentiation

Staking

dgnETH operates under a two-token model catering to both active and passive yield seekers.

Degen ETH (dgnETH)

  • Non Yield-Bearing: Pegged 1:1 with ETH, it foregoes yield from productive assets to pursue DeFi yield opportunities.
  • Active Strategies: Users can pursue higher yields through onchain strategies like lending, liquidity provision, and other DeFi integrations.

Staked Degen ETH (sdgnETH)

  • Yield-Bearing: This staked version provides boosted yields for users preferring passive income.
  • Passive Strategies: Users earn from the basket yield, benefiting from active strategies pursued by others.

Adjustable Collateral Basket

  • Dynamic Yield: Yields shift as new strategies are added to the collateral basket, managed through governor proposals and votes.

RSR Overcollateralization

  • Risk Mitigation: In case of asset default, RSR is sold to keep dgnETH holders whole, adding security.

Protocol Owned Liquidity (POL)

  • Yield Allocation: 5% of the yield goes into a wallet controlled by 0xSleepy and ABC Labs to incentivize onchain strategies.

Go To Market Strategy

The primary goal with dgnETH is to design the supply mechanisms to maintain a high ratio of non-staked to staked assets by leveraging strategic integrations across DeFi. Active users will be attracted to using dgnETH for onchain activity. As onchain activity increases for dgnETH, stakers receive a higher percentage of the basket ETH yield.

Dynamic Portfolio Management

Objective: sdgnETH will need consistent portfolio management to remain competitive for stakers. Consistently manage the sdgnETH portfolio to maximize yield.

Impact: Effective portfolio management ensures that sdgnETH remains attractive to stakers, supporting the dgnETH ecosystem by maintaining a high ratio of non-staked to staked assets.

Integrating Across the DeFi Legostack

Objective: Launch strategies and integrate with protocols to grow on-chain dgnETH activity. Early strategies will focus on liquidity provision and lending as the foundation for dgnETH DeFi integrations.

Impact: Increasing activity through liquidity provision and lending will provide a strong foundation for scaling into other strategies, maintaining a significant percentage of dgnETH activity on-chain.

DEXs: Curve, Uniswap

Lending: Morpho, UwU, Silo

Content Creation

Objective: Leverage the brand to capture the narrative and educate potential users.

Strategy:

  • Educational Content: Develop content explaining market segmentation, staking yield, and onchain yield opportunities.
  • Regular Updates: Share frequent updates on dgnETH’s performance, new features, and upcoming events on social media and dgnETH discord channel.
  • Engagement Campaigns: Run polls, Q&A sessions, and AMAs to engage the community. Use memes and interactive content to increase engagement and reach.

Impact: Through consistent reach with educational content users should clearly understand the risk and rewards of dgnETH and be capable of sharing the benefits with other community members its benefits.

What Does Success look like?
Success can be measured in TVL and within the first 90 days, a goal of $10m TVL would be a good benchmark of success.

Branding

Degen ETH embodies the adventurous spirit of the 2020 DeFi summer, offering a passive yield-generating strategy that captures the essence of early-day crypto “degens” and brings high-yield opportunities to all users through nuanced versions of classic yield farming.

The logo features an ETH token with Pepe eyes, reflecting the adventurous nature of DeFi participants pushing the boundaries of DeFi yield while having fun along the way.

The brand embodies the active Ethereum user community’s spirit, constantly growing, building, and exploring how onchain and offchain worlds can converge. This product pushes in the same direction, focusing on high-yield and risk management.

About Reserve Protocol

Reserve is a free, permissionless platform on Ethereum mainnet, Arbitrum, and Base to build, deploy and govern asset-backed currencies referred to as “RTokens.” RTokens are always 1:1 asset-backed, allowing for permissionless minting and redeeming onchain. Over X RTokens have been created on the reserve protocol accounting for $100 million in TVL as of April 2024.

What is expected from the RToken’s governors?
Governors are expected to advocate for and actively participate in the governance and enhancement of dgnETH, maintaining accountability to the overall product vision.

What can the community do to make this RToken a success?
Engage, suggest, and participate! If you’re seeking a high-impact DeFi project, dgnETH welcomes your input and innovation.
Follow on Twitter/X
Join the Discord

  • I am favor of launching the dgnETH RToken
  • I am not in favor of launching the dgnETH RToken
0 voters
2 Likes

A few things:

1- The name is just great, dgnETH :pinched_fingers:t2::pinched_fingers:t2::pinched_fingers:t2:

2- I can’t understand the following (Maybe it’s because my experience in DeFi is very low, sorry for that):

“sdgnETH will need consistent portfolio management to remain competitive for stakers. Consistently manage the sdgnETH portfolio to maximize yield.”

This portfolio management will fall to the end user (let him be responsible for looking for the best options in different DeFi protocols to obtain the best result) or do you mean that the RToken will undergo changes in its basket of assets every X amount of time in order to maintain the high performers? And if so, what would be the “risk/reward” factor that you/governooors would be willing to take to always obtain high performance on this specific RToken.

Thx.

1 Like

I like it and I like the name. Maybe there will be a suite of DegenXXX in the future. I’m all about giving people different RToken offerings and allowing them to choose what makes the most sense to them. High-yield opps like this are obviously enticing.

1 Like

More so the latter “the RToken will undergo changes in its basket of assets every X amount of time in order to maintain the high performers?”

The “risk/reward” for basket yield is currently at the lower end of the risk spectrum for DeFi yield. Convex and Morpho, have gone through rigorous audits, have a large staff, and bug bounties, however, Euler is an example of how battle tested protocols can still be exploited.

If the community wants to go further, it could go as degen as proposing newer protocols like Dripfi or vaults that offer users access to Pendle strategies.

It’ll come down to factors such as risk tolerance shared by the community, current dgnETH APY, RSR Over collateralization, etc.

If dgnETH goes too far for the risk tolerance of some community members, it will bring the opportunity to add a middle ground yield index between the risk preference of products like dgnETH and ETH+

1 Like

Fully agree,

It would be great to eventually see different yield indexes with associated risk profiles for different appetites. This is a use case for RTokens that could expand out into a new growth avenue for the community.

1 Like

What I really appreciate is that I don’t fully understand this RToken - and that means experimentation on the platform is happening!

(I think when I see it in action, it will start making more sense)

But to others in a state of confusion like myself, I’d like to think of dgnETH like this:

I can still assess this RToken and it’s potential risk factors from a governance POV in the usual ways -

  1. Do I have trust in (or can I research) the underlying assets?

  2. Can I give the same level of trust in terms of dgnETH inheriting the same audits, safety checks, safety mechanisms of the Reserve protocol? Yes.

So while I still have some things to learn about the two-token model, and how it specifically works, I think I can largely apply my same criteria when it comes to staking and governance, and I look forward to doing both when dgnETH launches.

The rest I can learn and understand as we go.

It’s a great write-up 0xSleepy, just a bit beyond my game level.

But TLDR, and for the less defi savvy stakers out there: I still feel more than comfortable supporting it based on the common characteristics it shares with the rest of the clan.

1 Like

Send it Sleepy!

Always thought rTokens needed more degeneracy and while it definitely has a place the shift away from low risk assets for treasury allocation is a welcome one even though product market fit may be harder to find - easier to address one entity with $100m than 1,000 users with $1000.

The two-token model adds a spicy twist! Eager to see how this will manifest on chain and if it’s possible to incentivise dgnETH enough to make hunting for DeFi yield worth users time. Only time will tell!

To add to @Smeddy point, already sensing the dgnETH proposal and subsequent discussion may have a nice secondary effect by educating the rToken tribe on novel DeFi models and sources of yield while still having a sense of familiarity as it’s built on Reserve rails.

Excited to see where we can take this.

2 Likes